KARACHI: In anticipation of a higher interest rate next week, the government once again dropped the cut-off yields on Treasury bonds at the auction on Wednesday.
As the government increased the amount within the auction target, the T-bill rates were lowered by as much as 41 basis points. This month, the return on a 12-month tenor was reduced by 41 basis points to 11.38 percent, down from 49 basis points at the auction on January 8. Since June 2024, the State Bank of Pakistan’s (SBP) policy rate has been lowered by 900 basis points from 22 basis points to 13 basis points in five intervals.
The majority of analysts and financial experts predict that the SBP will lower interest rates by 100 basis points during its meeting of the Monetary Policy Committee on January 27. The six-month T-bill’s return was lowered by the government by 39 basis points to 11.40 percent. The rate was reduced by 21 basis points in the last auction.
Compared to a 21bps fall in the previous auction, the short-term three-month papers that drew the lowest bids saw a 20bps drop to 11.58pc.
Additionally, the bidding pattern indicates that investors wanted to store their liquidity for extended periods of time in anticipation of future interest rate reductions.
With the highest bid of Rs864 billion for 12-month notes, the government received a total bid of Rs1.401 trillion, which supported the market’s belief that interest rates will be lowered. The government generated Rs325.5 billion by raising Rs220.3 billion through auction and Rs105.2 billion through non-bidding.
For three-, six-, and twelve-month papers, the government raised Rs3.3 billion, Rs5 billion, and Rs212 billion, respectively. Additionally, it was observed that the government had raised less money at multiple auctions than the maturity amount. The government raised Rs325.5 billion against the Rs350 billion auction objective, while the maturity amount on January 22 was Rs515 billion.
According to bankers, the KIBOR and T-bill rates suggest a probable 50–100bps decrease on January 27. Some argue that the SBP should hold off on lowering interest rates because a number of variables, including potential shifts in international trade, could cause inflation to increase.
